budgets

Question 1

why do businesses prepare cash budgets?

Answer 1

*to forecast/ plan ahead
*to aid decision making

Question 2

what are the benefits of preparing budgets?

Answer 2

• improved co-ordination of different departments
• improved control of the business
• helps achieve long term aims of the business

Question 3

stages involved in the preparation of a budget

Answer 3

• a budget officer may be appointed responsible for all the day to day work involved in preparation of the master budget
• the long term objectives of the organisation and management policies for meeting these should be established
• all budgets submitted to the budget committee for approval

Question 4

what does a production budget show/use?

Answer 4

• based on budgeted sales
• takes account of inventory holding requirements
• is the basis for labour, plant utilisation and materials budget

-should allow for quality control rejections

Question 5

what is a production budget used for by management?

Answer 5

• facilitates realistic sales and inventory budgeting, indicates necessity for review of production facilities.

Question 6

what is a cash budget for?

Answer 6

• shows estimated cash receipts and payments during the budget period
• highlights cash shortages and surpluses
• allows planning for future cash needs e.g organising a share issue

Question 7

what is a cash budget used for by management?

Answer 7

• facilitates decision making relating to other budgets
• highlights surpluses or shortfalls of cash when they are likely to occur